Short Reads

No exemption to the prohibition of market manipulation

No exemption to the prohibition of market manipulation

06.04.2017 NL law

Market abuse cases are relatively rare in the Netherlands. Recently, the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven) confirmed that the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the "AFM") rightfully concluded that a trader manipulated the market by securing the price of financial instruments to an abnormal or artificial level.

The judgment of the Tribunal of 22 February 2017 can be found here (in Dutch only).


A trader participated in 44 auctions to buy shares of small cap fund New Sources Energy N.V. (ticker: NSE, "NSE"). The auction took place twice a day. Rule in the auction was that the auction price would be the price for which the highest number of shares could be traded. The trader entered his bid in the auction seconds before the close of the auction for a high price. In 37 of the 44 auctions, for the trader succeeded in increasing the price by an average of 9.9%. Interestingly, the investors account of the trader was linked to the share price of NSE. The higher the share price on a day, the higher the credit would be that the trader could use with its bank.

The AFM imposed a fine of €100,000 on the trader for violating the prohibition on market manipulation. The District Court of Rotterdam upheld the decision of the AFM.

The Tribunal judgment

The Tribunal also upheld the decision of the AFM that it was the intention of the trader to manipulate the share price, since a higher share price would lead to the availability of a higher credit amount with the trader's bank. The fact that the trader did not otherwise profit from his actions, is irrelevant. The trader could not sufficiently prove that his actions were legitimate and in accordance with the use of accepted market practices.

The judgment illustrates that there is a higher risk for traders who cannot provide a convincing explanation of their behavior that meets the open norms of manipulative behavior. This is even more the case if this trader profits from his behavior. The judgment also shows that, although not statutory required, the intent of a person can be relevant to assess whether a trader manipulated the market and that relying on exemptions is difficult.


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